*** FUTURE POSTS WILL ALSO APPEAR AT 'NOW AND NEXT' : https://rolfnorfolk.substack.com
Friday, July 17, 2009
Prepare
Thursday, July 16, 2009
The East is [in the] Red
For now, a cloud no bigger than your fist on the horizon; but sometime... This is how we ourselves started, back in the 80s.
Wednesday, July 15, 2009
Masters of the Universe vs. the Lord's Elect
On an unrelated note, I've suddenly recalled the episode in Evelyn Waugh's "Decline and Fall" where Paul Pennyfeather meets a madman in prison:
"Well, one day I was just sweeping out the shop before shutting up when the angel of the Lord came in. I didn't know who it was at first. "Just in time," I said. "What can I do for you?" Then I noticed that all about him there was a red flame and a circle of flame over his head, same as I've been telling you. Then he told me how the Lord had numbered His elect and the day of tribulation was at hand. "Kill and spare not," he says."
Fortunately, the nutter's victim is a Modern Churchman, not a vitally important, wealth-creating banker.
Many market "shorts" are due to expire on Friday, I understand. Perhaps the market - a free and unmanipulated market, you may be sure - will change its mood next week.
PS
The S&P 500 closed above 900 points yesterday. "Mish" has said that it could easily fall below 500 points, or stall for years. He is against "buy and hold." So who profits if the poor layman is persuaded to stay in the market?
Regardless of what strategy one uses, it is a horrible idea to hold stocks throughout recessions.
Why Is Bad Advice So Common?
Clearly, stay the course is bad advice. So why is it so common? A personal anecdote might help explain things: In January of this year, an investment advisor from Wachovia Securities called me up and stated "Mish, I am sitting on millions because I see nothing I like". I told the person I did not like much either and that Sitka Pacific was heavily in cash and or hedged. His response was "Well, I do not get paid anything if my clients are sitting in cash".
I called up a rep at Merrill Lynch and he said the same thing, that reps for Merrill Lynch do not get paid if their clients are sitting in cash.
Massive Conflict of Interest
Notice the massive conflict of interest possibilities. Reps for various broker dealers have a vested interest in keeping clients 100% invested 100% of the time, even if they know it is wrong. And so it is every recession, bad advice permeates the airwaves and internet "Stay The Course".
We own you
This one points out that to balance the US budget with borrowing, new bonds must be sold totalling 3 times the amount issued last year. Bearing in mind that there's less money around, and that people are getting nervous about America's credit rating, inflation and the value of the dollar on the international market, it seems very unlikely that this new debt auction would succeed; and if it did, it would have to be on the basis of higher interest rates, to factor-in the various increased risks.
Alternatively, it's time for the repo man - with a twist. Nassim Taleb and Mark Spitznagel suggest that banks could take part of homeowners' equity in exchange for lower interest rates. But if houses continue to decline in price? I bet the banks have thought of that, so if such a scheme were introduced, they'd want a bigger share than most homeowners would be willing to give them. My guess is that when houseowners realize that the market isn't going to turn soon, there'll be more voluntary bankruptcies and doorkeys in the post. That, plus rising and lengthening unemployment could set off the domino chain.
But returning to the Sprott analysis, note that late last year, 28% of US debt was foreign-owned. Look out for some form of debt-for-equity here - if not the sale of equities, then in the form of favours and concessions. He who pays the piper calls the tune.
Sunday, July 12, 2009
It's just the way things are?
I've asked several times before, whether any country could have played it differently and avoided getting involved in The Crash. Then I read this article (htp: Jesse) about ex-BIS economist William White, and near the end there's an indication that maybe it's not simply about baddies and goodies:
This is the sort of thing that worries him. "That's when you have to ask yourself: Who exactly is controlling the whole thing anymore?"
They
Can't we do better than call vainly for somebody to restore justice to the world? Because that's the one thing that won't happen.
So, any ideas?
For example, what to do about the New World Order coinage unveiled by Medvedev the other day?
If you have a son or daughter, would you advise him/her to join GS and their ilk? Or McKinsey? Or emigrate?
Saturday, July 11, 2009
KBO
They're sobbing themselves to sleep,
The shrieks and wails
In the Yorkshire dales
Have even depressed the sheep.
In rather vulgar lettering
A very disgruntled group
Have posted bills
On the Cotswold Hills
To prove that we're in the soup.
While begging Kipling's pardon
There's one thing we know for sure
If England is a garden
We ought to have more manure.
Hurray-hurray-hurray!
Suffering and dismay.
Noel Coward.
Thursday, July 09, 2009
Wednesday, July 08, 2009
An astrologer writes
Next market peak due in... 2018 - if society's still around by then
On the other hand, history doesn't repeat, it rhymes. In 1966 China was... a disaster area. The world economy is much more interconnected now, and the tide is Eastwards, and big business is global. The company you invest in, if US or UK-based, may still be making good profits on its overseas earnings, even if domestic workers are all on the dole.
A recovery for the investors may happen sooner, and the market bottom may not be so deep in nominal terms (currency-adjusted is something else: look at what has happened to the dollar and pound; and what may yet happen). I think there's a big disconnect between the markets and Joe Average, since the extra wealth from 1980 on has mostly accrued to the top layer of society.
The concentration of money into fewer hands means that investment issues must inevitably give way to considerations of maintaining (repairing) the social and political fabric of our democracies.
Sunday, July 05, 2009
Where did the funny money go?
Now I come across a graph that makes it plain:
I suppose much the same happened here in the UK. So that's why we got all those posh-cooking and property-in -Provence TV programmes. We were encouraged to dream about the top echelon, not try to join them. As Eva Peron said, "I am taking the jewels from the oligarchs for you"; but somehow we never got to wear them ourselves. Not unless we went into hock for them.
This Wiki entry on the Gini coefficient remarks "Overall, there is a clear negative correlation between Gini coefficient and GDP per capita; although the U.S.A, Hong Kong and Singapore are all rich and have high Gini coefficients." Perhaps there is going to be a reversion to the standard international model: a poorer USA with a high Gini coefficient. Or (same source) a reversion to the social stratification of 1929:
"Gini indices for the United States at various times, according to the US Census Bureau:
1929: 45.0 (estimated)
1947: 37.6 (estimated)
1967: 39.7 (first year reported)
1968: 38.6 (lowest index reported)
1970: 39.4
1980: 40.3
1990: 42.8
2000: 46.2
2007: 46.3"
This blog projects a Gini convergence between the USA and Mexico - perhaps it makes sense, on the reversion-to-mean basis:
Friday, July 03, 2009
The sun also rises
Thursday, July 02, 2009
Faber: correction, then inflation
Dow 400?
For the record, EWFF also shows a "grand supercycle," beginning in January 2000 and ending at 400. Yes, that was FOUR HUNDRED.
And I thought I was being Eeyorish at 2,000.
Approaching the three-day week?
Wednesday, July 01, 2009
Market support
... a handful of banks, most specifically Goldman Sachs, constitute the majority of NYSE trading volume... This "back and forth trade" between a handful of institutions is nothing more than the old "pump and dump" game that has been played in the OTC market forever - and almost always screws the individual investor.
This is no different than you and I selling a house back and forth between us repeatedly, each time at a higher price. We both appear to be geniuses as we're both making a "profit", right?
Well, no. One of us is destined to take a horrifying loss if we do not find a sucker to make the final transaction with.
I wondered what was keeping it all up. And sooner or later...
P.S. Rob Kirby strongly suspects that similar manipulation is going on in oil and gold - one kept up, the other down. (For an update on the latter, click on the goldcam.)
Tuesday, June 30, 2009
Sunday, June 28, 2009
Another letter to The Spectator
Irwin Stelzer (“No more consensus: this time there is a choice”) holds up Ronald Reagan as a model of a Conservative working for the ordinary voter. He could hardly have chosen a worse exemplar.
From 1947 to 1981 (the year in which Jimmy Carter left, and the Great Communicator took office), US public debt outstanding had fluctuated between $2 – 2.5 trillion (inflation-adjusted to 2009 dollars). Carter ended his Presidency with the debt no worse than it had been when he began. Under Reagan, the debt doubled in real terms (average 9.7% p.a. increase). Bush senior continued this trend (7.3% p.a.); the next two terms under Clinton showed a significant slowing (1.8% p.a.); but Bush junior picked up the pace again (6.3% p.a.) America now has $11.4 trillion public debt around its neck, approximately 5 times the equivalent in 1980, when Reagan asked voters, “Are you better off than you were four years ago?”
Well, how much better-off is Joe Average now? In the latest issue of Harvard Business Review, Gary Pisano and Willy Shih conclude that “average real weekly wages have essentially remained flat since 1980.” Instead, the “trickle-down effect” has turned out to be a torrent for the upper stratum only: in a 2006 speech reviewing hourly wage rate increases from 1973 – 2005, the economist Janet Yellen, of the Federal Reserve Bank of San Francisco, said “... the growth was heavily concentrated at the very tip of the top, that is, the top 1 percent”. The rest played catch-up by taking on extra personal debt: an investment analyst quoted in The Economist (22 January 2009) says “... the share of household and consumer debt alone went up from 100% of GDP in 1980 to 173% today, equivalent to around $6 trillion of extra borrowing.” Naturally, this process was much to the advantage of bankers, brokers and others in the top 1%.
In short, America has been pretty nearly busted by and for its elite. So much for the party of smaller government; so much for supporting the core Conservative, hard-working average wage-earner; not so much clear blue water, as a tide of red ink. One can only hope that the next British Conservative government, if there is one, will seek not to emulate Reagan and the Bushes.
Yours,
Saturday, June 27, 2009
Down
The left-hand scale is in $billions.
To quote Status Quo, "down down, deeper and down".